CIT, FARIDABAD vs. M/S KAMAL FAMILYU TRUST, FRIDABAD

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ITA/19/2009HC Punjab & HaryanaPHHC01084270200908 October 2012Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE GURMEET SINGH SANDHAWALIA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court addressed two substantial questions of law. Regarding the foreign travel expenses (Question A), the Court noted that the CIT(A) had allowed 50% of the expenses, finding that Kamal Khanna, a heart patient, was looking after business and his wife accompanied him for his care. The CIT(A) also recorded that the visit resulted in business increase. The Tribunal affirmed this finding. The revenue's counsel argued that the 50% allowance was without basis but could not substantiate this plea. The Court held that determining the reasonable and allowable portion of such expenses is a question of fact, and the CIT(A)'s and Tribunal's concurrent finding of 50% being reasonable was not successfully challenged. Thus, Question A was answered against the revenue. Concerning the late payment of PF & ESI contributions (Question B), the Court noted that the issue was settled by the Apex Court in Commissioner of Income Tax v. Alom Extrusions Ltd. and this Court's decision in Commissioner of Income Tax, Patiala v. M/s Rai Agro Industries Ltd. Sangrur. These judgments held that the Second Proviso to Section 43B, omitted by the Finance Act, 2003, was clarificatory and retrospective. Therefore, the CIT(A) was correct in deleting the addition as the payments were deposited prior to the filing of the return under Section 139(1). Question B was answered against the revenue. The appeal was dismissed.

What were the facts?

The Revenue (Commissioner of Income Tax, Faridabad) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2001-02. The assessee, M/s Kamal Family Trust, had its assessment completed at an income of Rs. 26,02,640/-, an increase from its declared income. The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the assessee's appeal, deleting additions made by the Assessing Officer (AO) totaling Rs. 8,78,347/- on account of foreign travel expenses, Rs. 2,64,937/- for late payment of PF & ESI contributions, Rs. 1,04,328/- on short-term capital gain, and Rs. 28,350/- on interest-free advance. The ITAT also partly allowed appeals from both the revenue and the assessee. The High Court heard the revenue's appeal.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in confirming the order of the Ld. CIT(A) in deleting addition of Rs.8,78,347/- out of total addition of Rs.17,56,694/- made by the Assessing Officer on account of foreign travel expenses incurred on foreign travel of Sh. Kamal Khanna and his wife, especially when the assessee did not file any cogent evidence and has failed to discharge its onus to prove that the expenses incurred on foreign travelling were wholly and exclusively for the business of the assessee? (Question of mixed law and fact, concerning the allowability of business expenditure under Section 37). 2. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in confirming the order of the Ld. CIT(A) in deleting the addition of Rs.2,64,937/- made by the Assessing Officer u/s 36(1)(va) and u/s 43B of the Income Tax Act, 1961 on account of late payment of employee's as well as employer's contribution to PF & ESI without appreciating the fact that payment was not made by the assessee within the prescribed “due date” by which the assessee was required to make payment? (Question of law, concerning the disallowance of expenses under Sections 36(1)(va) and 43B). Assessee's contentions: Not recorded in the judgment. Revenue's contentions: For issue 1, the revenue argued that the assessee failed to discharge its onus to prove that the foreign travel expenses were wholly and exclusively for business. For issue 2, the revenue contended that payments were not made within the prescribed due dates. The revenue relied on Commissioner of Income Tax v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) and this Court's decision in Income Tax Appeal No. 663 of 2005 (The Commissioner of Income Tax, Patiala v. M/s Rai Agro Industries Ltd. Sangrur) decided on 30.11.2010.

Which sections of the Income-tax Act were involved?

Section 260A,Section 37,Section 36(1)(va),Section 43B,Section 139(1)

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB and HARYANA AT CHANDIGARH Date of Decision: 8.10.2012 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Kamal Family Trust ...Respondent CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE G.S. SANDHAWALIA. PRESENT: Mr. Tajender K. Joshi, Advocate for the appellant. None for the respondent. AJAY KUMAR MITTAL, J.

1.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 13.6.2008 passed by the Income Tax Appellate Tribunal, Delhi Bench “I”, Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 3977/DEL/2005, for the assessment year 2001-02, claiming the following substantial questions of law:- A. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in confirming the order of the Ld. CIT(A) in deleting addition of Rs.8,78,347/- out of total addition of Rs.17,56,694/- made by the Assessing Officer on account of foreign travel expenses incurred on foreign travel of Sh.

-2- Kamal Khanna and his wife especially when the assessee did not file any cogent evidence and has failed to discharge his onus to prove that the expenses incurred on foreign travelling were wholly and exclusively for the business of the assessee? B. Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in confirming the order of the Ld. CIT(A) in deleting the addition of Rs.2,64,937/- made by the Assessing Officer u/s 36(1) (va) and u/s 43B of the Income Tax Act, 1961 on account of late payment of employee's as well as employer's contribution to PF & ESI without appreciating the fact that payment was not made by the assessee within the prescribed “due date” by which the assessee was required to make payment?

2.

Put shortly, the facts necessary for adjudication of the present appeal as narrated therein are that the assessee filed its return for the assessment year 2001-02 on 11.3.2004 declaring an income of ` 5,41,760/-. The assessment in this case was completed vide order dated 11.3.2004 at an income of ` 26,02,640/-. Against the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 8.8.2005 partly allowed the appeal and deleted the following additions made by the Assessing Officer:- i) Rs.8,78,347/- On account of Foreign Travel Expenses ii) Rs.2,64,937/- On account of late deposit of PF -3- & ESI. iii) Rs.1,04,328/- On account of short term capital gain. iv) Rs.28,350/- On account of interest free advance.

3.

Being dissatisfied, the revenue as well as the assessee filed appeals challenging the order of the CIT(A) before the Tribunal. The Tribunal vide order dated 13.6.2008 partly allowed both the appeals. Hence, the present appeal by the revenue claiming the substantial questions of law as noticed hereinbefore.

4.

We have heard learned counsel for the revenue.

5.

Question (A) relates to the admissibility of expenses on account of foreign travel incurred by Kamal Khanna and his wife which has been allowed to the extent of 50% by the CIT(A) and upheld by the Tribunal. The CIT(A) while allowing 50% deduction on account of expenses incurred on foreign visit by Kamal Khanna and his wife had noted that Kamal Khanna was a heart patient and was looking after the business of the firm. His wife had to accompany for looking after him on visit to the foreign country. It was also recorded that the visit resulted in increase in the business and after analyzing the factual matrix had allowed 50% expenses as revenue expenditure which was wholly and exclusively expended for business purposes. The said finding was affirmed on appeal by the Tribunal. It would basically be a question of fact as to how much expense is reasonable and is allowable in a given case. In the present case, on appreciation of evidence, it was recorded by the CIT(A) and affirmed by the Tribunal that it was 50% which was reasonable and was to be allowed as revenue expenditure. An effort -4- was made by the learned counsel for the revenue to submit that 50% had been allowed without any basis. He, however, could not substantiate the said plea. Accordingly, question (A) is answered against the revenue and in favour of the assessee.

6.

Adverting to question (B), learned counsel for the appellant could not dispute that the issue raised herein finally stands settled by the Apex Court judgment in Commissioner of Income Tax v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) and decision of this Court in Income Tax Appeal No. 663 of 2005 (The Commissioner of Income Tax, Patiala v. M/s Rai Agro Industries Ltd. Sangrur), decided on 30.11.2010 wherein it has been held that Second Proviso to Section 43B of the Act omitted by Finance Act, 2003 with effect from 1.4.2004 was clarificatory in nature and was to operate retrospectively. Once that is so, in the present case, the CIT(A) was right in deleting the addition of Rs.2,64,937/- made by the Assessing Officer u/s 36(1)(va) and u/s 43B of the Income Tax Act, 1961 on account of late payment of employee's as well as employer's contribution to PF & ESI as the same had been deposited prior to the filing of the return under Section 139 (1) of the Act. Thus, question (B) stands answered against the revenue and in favour of the assessee.

7.

In view of the above, there is no merit in this appeal and the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE October 8, 2012 (G.S. SANDHAWALIA) gbs JUDGE

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